We use cookies to customise content for your subscription and for analytics.If you continue to browse Lexology, we will assume that you are happy to receive all our cookies. For further information please read our Cookie Policy.

The collapse of OW Bunker A/S and its worldwide subsidiaries left a multitude of creditors seeking other methods of collecting payment for fuel ordered on credit by OW Bunker and delivered to numerous vessels. OW Bunker subcontracted bunker orders to local fuel suppliers, which delivered bunkers to the vessels and invoiced OW Bunker. When the OW Bunker bankruptcies left the invoices unpaid, fuel suppliers began arresting vessels in an attempt to obtain full payment and circumvent the bankruptcy proceedings.

Decision

In a recent decision the US District Court for the Eastern District of Louisiana ruled that a fuel supplier that had contracted with OW Bunker to provide fuel to a vessel was not entitled to a maritime lien against this vessel. The court held that the fuel supplier, as a subcontractor, was not entitled to a necessaries lien unless the vessel owner or other person with authority to bind the ship selected the ultimate supplier or otherwise retained control over its performance.(1)

The court in Valero was confronted with a common situation. A vessel's agent contracted with a foreign OW Bunker entity to provide fuel to a vessel on its arrival in Corpus Christi, Texas. The foreign OW Bunker entity then contracted with OW Bunker USA, which in turn contracted with a local supplier, Valero Marketing & Supply Co, to provide the bunkers to the M/V Almi Sun. Shortly after Valero provided the fuel, the OW Bunker entities filed for bankruptcy without paying Valero's invoices. Valero sought payment by arresting the Almi Sun, claiming a maritime lien for necessaries against the vessel.

In assessing Valero's claim, the court considered two lines of cases that have developed in situations where a supplier is alleging a necessaries lien against a vessel:

In Lake Charles Stevedores the Fifth Circuit found that an agency relationship was required and that a person with authority to bind the vessel must have some control over the subcontractor's selection or performance in order for the subcontractor to have a maritime lien for necessaries. By contrast, in Ken Lucky the Ninth Circuit held that there need not be an agency relationship between a time charterer and an intermediary in order for an ultimate supplier to have a maritime lien against the vessel, as long as the order originated from the time charterer or other entity with authority to incur a necessaries lien.

Valero claimed that it was entitled to a maritime lien because the fuel order originated from the vessel's agent, which had authority to bind the vessel, relying on Ken Lucky. The vessel owner relied on Lake Charles Stevedores, arguing that Valero did not have a maritime lien because it was selected by OW Bunker and no entity with authority to bind the vessel had any control over Valero's selection or performance.

The court in Valero followed the Fifth Circuit's precedent in Lake Charles Stevedores and found that a vessel owner or charterer must direct the selection of the particular supplier or retain control over the supplier's performance in order for that supplier to have a maritime lien. In conducting its analysis, the court considered the following factors in order to determine whether there was a maritime lien for necessaries – in particular, whether:

the vessel owner or entity with authority to bind the vessel 'nominated' or otherwise had control over the selection of the ultimate supplier;

the vessel owner accepted any risk in the event that the fuel cost more than what the vessel owner agreed to pay;

the ultimate supplier could be liable to the vessel owner for breach of contract if it failed to provide the necessary;

a vessel's contract with the general contractor also lists a specific subcontractor;

a general contractor declines to take responsibility for a subcontractor's work;

the vessel operators dealt directly with the subcontractor in discussing and inspecting the subcontractor's work; and

the subcontractor was identified and accepted by the vessel owner or charterer before performance.

Ultimately, the court concluded that there was no evidence that the vessel owner directed OW Bunker to hire a particular subcontractor, and no evidence to suggest that the vessel owners specifically 'nominated' Valero to supply the bunkers, as was the case in Ken Lucky. The vessel interests never had any dealings with Valero other than to accept delivery and, the court held, a vessel's mere acceptance of necessaries does not by itself create a maritime lien. It also was irrelevant that the contract between Valero and OW Bunker provided that Valero was relying on the credit of the vessel because the vessel owner was not a party to that contract. Based on these findings, the court granted summary judgment in favour of the vessel owner, dismissing the in rem action for lack of a maritime lien.

Comment

Valero is the first ruling issued by a US court deciding the maritime lien issue in the OW Bunker context. While the decision is a blow to the physical fuel suppliers, it likely will not be the final word on the issue. The US Court of Appeals for the Fifth Circuit soon will have occasion to review the issue, as Valero recently filed a notice that it will appeal the decision.(4) The same issues also remain to be addressed by numerous other district courts throughout the United States, which have been presented with similar cases arising out of the OW Bunker bankruptcies. Consequently, developments in these cases will be closely watched in the coming months by parties on all sides of the issue.

Compare jurisdictions: Arbitration

"Lexology is a good barometer of a firm's expertise as the articles showcase a firm's understanding of the issues involved and how up to date their knowledge is. It's a good one stop solution where one is able to view the same law/cases from different perspectives; on the whole I would rate Lexology as a good service."